Companies Final Account: Meaning, Example, Format, And Adjustments

Whenever the accounting period ends then it creates a series of statements that comprises the final account. Companies final account reflect the current financial position of an organization. This is actually prepared to summarize the financial performance as well as the condition of the company.

All these accounts provide accurate financial information to its stakeholders in order to ensure compliance with some legal requirements. Additionally, this can boost the scope of proper maintenance of your financial records of your company.

In order to maintain the company’s final account there are certain steps you need to keep in mind . Without proper application of strategy things can turn difficult for you in the long run.

What Is A Company’s Final Account?

A company’s final account refers to a set of financial statements prepared at the end of an accounting period (typically a financial year) to summarize the financial performance and position of the business.

These accounts provide a clear picture of the company’s profitability, assets, liabilities, and equity, and are crucial for stakeholders like shareholders, creditors, and regulators. For a 12th-grade student learning tools like Tally, understanding final accounts is relevant since TallyPrime is often used to generate these statements.

What Are The Components Of Final Accounts?

Final accounts are the ultimate summary of a business’s financial activities during an accounting period. They give a clear snapshot of where a business stands financially and are crucial for decision-making, compliance, and transparency.

Here are the key components of final accounts:

 1. Trading Account

• Shows the gross profit or loss from buying and selling goods.
• Calculated by subtracting cost of goods sold from sales revenue.
• Includes opening stock, purchases, direct expenses, and sales.

2. Profit And Loss Account

• Reveals the net profit or loss after subtracting indirect expenses.
• Includes administrative, selling, and distribution expenses.
• Also records other income like rent received, commission, etc.

3. Balance Sheet

• A financial statement showing the company’s assets, liabilities, and equity at a specific point in time.
• Divided into:
  • Assets: Current and non-current (e.g., cash, stock, machinery).
  • Liabilities: Current and long-term (e.g., creditors, loans).
  • Owner’s Equity: Capital, reserves, and drawings.

4. Manufacturing Account (if applicable)

• Used by manufacturing firms to calculate the cost of goods produced.
• Includes raw materials, labor, factory expenses, and work-in-progress.

Benefits Of Companies Final Account

There are several benefits of companies’ final account. Some of the key factors that you should know here are as follows:-

1. Measure Financial Performance

• Purpose: The Trading and Profit and Loss Accounts show gross profit and net profit, indicating how well the company performed during the year.
• Benefit: Helps management assess whether the business is profitable and identify areas to improve (e.g., reducing expenses or increasing sales).
• For You: In TallyPrime, you’ll learn to generate these accounts, a skill useful for bank roles like Accounts Assistant, where you analyze clients’ profitability for loan approvals.

2. Reveal The Financial Position

• Purpose: The Balance Sheet provides a snapshot of the company’s assets, liabilities, and equity at a specific point. A company’s final account can make things easier for you to reach your goals with ease.
• Benefit: Shows financial stability, helping stakeholders understand what the company owns (e.g., cash, inventory) versus what it owes (e.g., loans, creditors).
• For You: Understanding balance sheets in Tally is key for bank back-office jobs, as banks evaluate clients’ financial health for credit decisions.

3. Facilitate Decision Making

• Purpose: Final accounts provide data for strategic decisions, such as expanding operations, cutting costs, or raising capital.
• Benefit: Management can plan budgets, while investors decide whether to invest based on profitability and stability. It is an important part of companies final account.
• For You: Learning to interpret final accounts in TallyPrime prepares you for roles where you assist with financial reporting or data analysis in banks or SMEs.

4. Ensure The Legal & Regulatory Compliance

• Purpose: Final accounts are mandatory under laws like the Companies Act, 2013 in India and for tax filings (e.g., GST, income tax).
• Benefit: Ensures the company meets statutory requirements, avoiding penalties, and maintains transparency with regulators like the Ministry of Corporate Affairs (MCA).
• For You: TallyPrime’s GST compliance and reporting features help you master these tasks, which are valuable for bank jobs involving client tax documentation.

5. Attract Investors & Creditors

• Purpose: Final accounts provide credible financial data to external parties.
• Benefit: Investors use them to assess returns, while banks and creditors evaluate creditworthiness for loans. A strong balance sheet or profit trend can secure funding.
• For You: In bank roles, you may review clients’ final accounts to process loans, making Tally skills directly applicable. Companies’ final account can easily track the interest of the investors.

6. Enable Performance Comparison

• Purpose: Final accounts allow comparison of financial performance across years or with competitors.
• Benefit: Identifies trends (e.g., increasing profits or rising debt) and helps benchmark against industry standards.
• For You: TallyPrime’s reporting tools let you generate comparative statements, a skill useful in bank back-office tasks for analyzing client financials.Companies final accounts can easily attract the interests of the shareholders.

7. Support Auditing And Accountability

• Purpose: Final accounts are audited to ensure accuracy and transparency.
• Benefit: Builds trust with stakeholders (shareholders, creditors) by verifying financial integrity and detecting errors or fraud.
• For You: Knowledge of final accounts in Tally helps you assist auditors in banks or firms, enhancing your employability in accounting roles.

Format & Details Of Companies Final Account

There are certain formats of companies’ final accounts that you need to maintain while you want to prepare the final account for your company. So, let’s explore the format that can make things easier for you.

What Is Trading A/c?

A Trading Account in Final Accounts is a financial statement prepared by a trading or merchandising business to determine the gross profit or gross loss from its trading activities over a specific period. It is the first part of the final accounts, followed by the Profit and Loss Account and Balance Sheet.

Purpose of Trading Account

• To calculate the gross profit (if sales revenue exceeds the cost of goods sold) or gross loss (if the cost of goods sold exceeds sales revenue).
• To summarize the results of buying and selling goods during the accounting period.

Components of a Trading Account

The Trading Account follows a specific format and includes the following key elements:

Debit Side (Expenses related to trading)

1. Opening Stock: Value of inventory at the beginning of the accounting period.
2. Purchases: Total cost of goods purchased during the period (less purchase returns).
3. Direct Expenses: Costs directly related to the production or procurement of goods, such as:
   • Wages (labor costs for production)
   • Freight/Carriage Inwards (transportation costs for bringing goods to the business)
   • Custom Duty, Octroi, or other import duties
   • Fuel and power used in production
   • Factory rent, insurance, or other manufacturing expenses

Credit Side (Revenue from trading)

1. Sales: Total revenue from goods sold during the period (less sales returns).
2. Closing Stock: Value of unsold inventory at the end of the accounting period.

Format Of Trading A/c

Formula For Calculating Gross Profit:- 

What Is Profit & Loss A/c?

A Profit and Loss Account (P&L Account) in Final Accounts is a financial statement prepared to determine the net profit or net loss of a business for a specific accounting period. It follows the Trading Account and is the second part of the final accounts, summarizing all indirect incomes and expenses to show the overall profitability of the business.

Purpose of Profit And Loss Account

• To calculate the net profit (if total income exceeds total expenses) or net loss (if total expenses exceed total income).
• It helps to record all indirect expenses (e.g., administrative, selling, and distribution expenses) and other incomes (e.g., interest, rent received).
• To provide a clear picture of the business’s financial performance after accounting for operational and non-operational expenses.

Components Of A Profit And Loss Account

The P&L Account is divided into two sides:

Debit Side (Expenses)

1. Gross Loss (if any, brought down from the Trading Account).
2. Indirect Expenses:
   • Administrative Expenses: Office salaries, rent, insurance, stationery, depreciation.
   • Selling and Distribution Expenses: Advertising, sales commissions, carriage outwards, bad debts.
   • Financial Expenses: Interest on loans, bank charges.
   • Other Expenses: Loss on sale of assets, provisions for doubtful debts, repairs, and maintenance.

Credit Side (Incomes)

1. Gross Profit (brought down from the Trading Account).
2. Other Incomes:
   • Interest received
   • Rent received
   • Discounts earned
   • Income from investments
   • Profit on sale of assets

Format Of Profit & Loss Accounts

Formula For Calculating Net Profit  

What Is Balancesheet?

A Balance Sheet in Final Accounts is a financial statement that provides a snapshot of a business’s financial position at a specific point in time, typically at the end of an accounting period. It is the final component of the final accounts, prepared after the Trading Account and Profit and Loss Account. The Balance Sheet summarizes the business’s assets, liabilities, and capital to show what the business owns, owes, and the owner’s equity.

Purpose Of A Balance Sheet

• To present a clear picture of the financial health of a business.
• To show the relationship between assets, liabilities, and capital, adhering to the accounting equation:
  Assets = Liabilities + Capital
• To provide information for stakeholders (e.g., investors, creditors) to assess the business’s liquidity, solvency, and financial stability.

Components of a Balance Sheet

The Balance Sheet is divided into two main sections: Assets and Liabilities (including Capital).

1. Assets (What the business owns)

• Current Assets: Assets that can be converted into cash within a year or operating cycle, e.g.:
  • Cash in hand and bank
  • Accounts receivable (debtors)
  • Closing stock (from Trading Account)
  • Prepaid expenses
• Non-Current Assets: Long-term assets used in the business for more than a year, e.g.:
  • Fixed assets (land, buildings, machinery, furniture)
  • Intangible assets (goodwill, patents)
  • Long-term investments

2. Liabilities (What the business owes)

• Current Liabilities: Obligations payable within a year or operating cycle, e.g.:
  • Accounts payable (creditors)
  • Short-term loans
  • Outstanding expenses
  • Bank overdraft
• Non-Current Liabilities: Long-term obligations, e.g.:
  • Long-term loans
  • Debentures
  • Mortgages

3. Capital (Owner’s Equity)

• Capital: The owner’s investment in the business, adjusted for:
  • Opening capital
  • Add: Net Profit (from Profit and Loss Account) or Less: Net Loss
  • Less: Drawings (withdrawals by the owner)
  • Add: Additional capital introduced

Format Of Balance Sheet

Formula Of Balance sheet Equations 

Preparation Of Final Accounts Of A Company

There are several steps you need to take for the preparation of the final accounts of a company. Some of the key steps of preparation of final accounts are as follows:-

1. Collect The Financial Data

Trial Balance: Obtain the trial balance, which lists all ledger account balances (debits and credits) at the end of the accounting period.

Adjustments: Gather details of adjustments, such as:

• Closing stock
• Depreciation on fixed assets
• Outstanding/prepaid expenses
• Accrued income/income received in advance
• Provisions (e.g., for doubtful debts, taxes)
• Bad debts

Supporting Records: Collect invoices, bank statements, and ledgers for verification.

2. Prepare The Trading Account

The Trading Account determines the gross profit or gross loss from trading activities.

1. Debit Side (Expenses):
   • Opening Stock: Inventory at the start (from trial balance).
   • Purchases: Total purchases, less purchase returns (from trial balance).
   • Direct Expenses: Wages, carriage inwards, freight, customs duty, etc. (from trial balance or adjustments).
2. Credit Side (Revenues):
   • Sales: Total sales, less sales returns (from trial balance).
   • Closing Stock: Unsold inventory at period-end (from adjustments or stock count).
3. Calculate Gross Profit/Loss:
   • Gross Profit = Sales + Closing Stock – (Opening Stock + Purchases + Direct Expenses).
   • If the credit side exceeds the debit side, the difference is gross profit; otherwise, it’s gross loss.
   • Transfer gross profit/loss to the Profit and Loss Account.

3. Prepare The Profit & Loss Account

The Profit and Loss Account calculates the net profit or net loss after indirect incomes and expenses.

1. Debit Side (Expenses):
   • Gross Loss (if any, from Trading Account).
   • Indirect Expenses (from trial balance or adjustments):
     • Administrative: Salaries, office rent, insurance, stationery.
     • Selling/Distribution: Advertising, carriage outwards, commissions.
     • Financial: Interest on loans, bank charges.
     • Others: Depreciation, bad debts, provisions.
2. Credit Side (Incomes):
   • Gross Profit (from Trading Account).
   • Other Incomes: Interest received, rent received, discounts earned, profit on asset sales, etc. (from trial balance or adjustments).
3. Calculate Net Profit/Loss:
   • Net Profit = Gross Profit + Other Incomes – Indirect Expenses.
   • If the credit side exceeds the debit side, it’s net profit; otherwise, it’s net loss.
   • Transfer net profit/loss to Reserves/Surplus (for companies) or Capital Account (for proprietorships/partnerships).

4. Prepare The Balancesheet

The Balance Sheet reflects the company’s financial position as of the period-end date, based on the equation: Assets = Liabilities + Equity.

1. Liabilities Side:
   • Equity and Reserves:
     • Share capital (for companies).
     • Reserves and surplus (add net profit or deduct net loss from P&L Account).
     • Adjust for dividends or appropriations.
   • Non-Current Liabilities: Long-term loans, debentures, deferred tax liabilities.
   • Current Liabilities: Creditors, bank overdrafts, outstanding expenses, short-term provisions.
2. Assets Side:
   • Non-Current Assets: Fixed assets (land, machinery, less depreciation), intangible assets (goodwill, patents), long-term investments.
   • Current Assets: Closing stock (from Trading Account), debtors, cash, bank balances, prepaid expenses.
3. Balance the Sheet:
   • Ensure Total Assets = Total Liabilities + Equity.
   • Verify all adjustments are reflected (e.g., depreciation reduces assets, outstanding expenses increase liabilities).

5. Apply Adjustments

Incorporate adjustments to ensure accuracy:

• Closing Stock: Credit in Trading Account, asset in Balance Sheet.
• Depreciation: Debit in P&L Account, deduct from relevant asset in Balance Sheet.
• Outstanding Expenses: Debit in P&L Account, add to liabilities in Balance Sheet.
• Prepaid Expenses: Deduct from expenses in P&L Account, add to assets in Balance Sheet.
• Accrued Income: Credit in P&L Account, add to assets in Balance Sheet.
• Provisions: Debit in P&L Account (e.g., provision for doubtful debts), deduct from relevant assets (e.g., debtors) in Balance Sheet.

6. Verify & Comply

Check Balances: Ensure the Trial Balance, Trading Account, P&L Account, and Balance Sheet are consistent and balanced.

Accounting Standards: Follow relevant standards (e.g., IFRS, GAAP, or Ind AS for Indian companies) for presentation and disclosures.

Disclosures: For companies, include:

• Notes to accounts (e.g., accounting policies, contingent liabilities).
• Cash Flow Statement (if required).
• Directors’ Report (for statutory compliance).

7. Finalize & Present

Compile the final accounts in the prescribed format (e.g., Schedule III for Indian companies).

Obtain auditor approval (if required) for statutory compliance.Present to stakeholders (e.g., shareholders, regulators) during annual general meetings or as required.

What Is The Treatment Of Reserve & Surplus In Final Accounts?

The treatment of Reserves and Surplus primarily occurs in the Profit and Loss Appropriation Account (an extension of the Profit and Loss Account for companies) and the Balance Sheet. Here’s how they are handled:

Step 1: Treatment In The Profit And Loss Appropriation Account

The Profit and Loss Appropriation Account is prepared to show how the net profit (or net loss) from the Profit and Loss Account is distributed or appropriated. This account determines the Surplus and any transfers to Reserves.

1. Credit Side (Incomes):
   • Net Profit: Brought forward from the Profit and Loss Account.
   • Balance of Surplus (b/f): Any surplus brought forward from the previous year’s Profit and Loss Appropriation Account.
   • Other Incomes: Items like refunds of taxes or reversal of provisions (if applicable).
2. Debit Side (Appropriations):
   • Transfers to Reserves: Amounts allocated to specific reserves, such as:
     • General Reserve (for future use or strengthening financial position).
     • Statutory Reserve (as required by law, e.g., for banking companies under RBI regulations).
     • Other specific reserves (e.g., Debenture Redemption Reserve).
   • Dividends: Declared dividends (interim or final) to shareholders.
   • Taxes: Corporate dividend tax (if applicable, depending on jurisdiction and tax laws).
   • Other Appropriations: Any other allocations, such as transfers to sinking funds or provisions.
   • Surplus Carried Forward: The remaining balance after all appropriations is the Surplus, carried forward to the next year and shown in the Balance Sheet.

Step 2: Treatment In The Balance Sheet

Reserves and Surplus are shown under Shareholders’ Funds (or Equity) on the Liabilities side of the Balance Sheet, as they represent the company’s accumulated earnings and retained profits.

1. Components of Reserves and Surplus:
   • Capital Reserves: E.g., profit on sale of assets, share premium, or revaluation reserve.
   • Revenue Reserves: E.g., General Reserve, Dividend Equalization Reserve.
   • Surplus: Balance in the Profit and Loss Appropriation Account (carried forward after appropriations).
   • Other Reserves: Statutory or specific reserves (e.g., Debenture Redemption Reserve).
2. Presentation in Balance Sheet:
   • Reserves and Surplus are listed under Shareholders’ Funds, alongside Share Capital.
   • For companies following formats like Schedule III (under the Indian Companies Act, 2013), Reserves and Surplus are disclosed separately with details in Notes to Accounts.

   Step 3: Adjustments And Considerations

• Adjustments from Trial Balance:
  • Opening Balance of Reserves/Surplus: Taken from the trial balance or previous year’s Balance Sheet.
  • Net Profit/Loss: Transferred from the Profit and Loss Account to the Appropriation Account.
  • Appropriations: Deduct transfers to reserves, dividends, or other appropriations from the net profit to arrive at the Surplus.
• Statutory Requirements: Certain reserves (e.g., Statutory Reserve for banking companies) may be mandatory under local laws.
• Revaluation or Adjustments: If reserves like Capital Reserve are adjusted (e.g., due to revaluation of assets), reflect these in the Balance Sheet with appropriate disclosures.

Step 4: Disclosures in Notes to Accounts

• For companies, Notes to Accounts provide detailed breakdowns of Reserves and Surplus, including:
  • Opening balance, additions (e.g., transfers from net profit), deductions (e.g., utilization), and closing balance for each reserve.
  • Nature and purpose of each reserve (e.g., General Reserve for future growth, Debenture Redemption Reserve for debt repayment).
  • Any restrictions on the use of reserves (e.g., statutory reserves).

Final Account Of Insurance Company

Preparing the final accounts for an insurance company in India differs from that of a typical joint stock company because insurance companies are governed by the Insurance Act, 1938, and regulations issued by the Insurance Regulatory and Development Authority of India (IRDAI), in addition to the Companies Act, 2013. As per the provision to Section 129(1) of the Companies Act, 2013, Schedule III does not apply to insurance companies, as their financial statements are prepared under specific formats prescribed by the IRDAI and the Insurance Act, 1938.

Key Features Of Insurance Company Final Accounts

• Regulatory Framework:
  • Insurance Act, 1938: Prescribes forms (Form A for Balance Sheet, Form B for Profit and Loss Account, Form D for Revenue Account).
  • IRDAI Regulations: IRDAI (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002, outline detailed formats.
  • Companies Act, 2013: Applies for general compliance (e.g., Section 129 for financial statements, audit requirements), but Schedule III is not applicable.
  • Indian Accounting Standards (Ind AS): Mandatory for certain insurance companies (e.g., those with net worth ≥ ₹1,000 crore) since April 1, 2020, as per IRDAI and MCA guidelines.
• Financial Year: Accounts are prepared for the calendar year (January 1 to December 31) or financial year (April 1 to March 31), as per IRDAI norms.
• Components:
  • Revenue Account (Form D)
  • Profit and Loss Account (Form B)
  • Balance Sheet (Form A)

Steps To Prepare Final Accounts Of Insurance Company

There are some simple steps you need to take in order to prepare the final accounts of an Insurance company. Some of the key steps that you should take care off are as follows:-

1. Understand The Structure Of Financial Statements

Insurance companies prepare separate accounts for policyholders’ funds (related to insurance business) and shareholders’ funds (general operations). The key statements are:

• Revenue Account: Reflects income and expenses from insurance operations (e.g., premiums, claims, commissions).
• Profit and Loss Account: Captures non-insurance business activities and overall profitability for shareholders.
• Balance Sheet: Shows the financial position, including policyholders’ and shareholders’ funds.
• Notes: Provide detailed disclosures as required by IRDAI and accounting standards.

2. Gather Financial Data

• Trial Balance: Extract balances from ledgers (e.g., premiums, claims, investments, expenses).
• Supporting Records: Policy records, investment statements, reinsurance contracts, bank statements.
• Adjustments: Provisions for unexpired risks, outstanding claims, depreciation, taxes, etc.
• IRDAI Reports: Data from actuarial valuations, solvency margins, and regulatory filings.

3. Prepare The Revenue Account (Form D)

The Revenue Account is prepared for each class of insurance business (e.g., Life, Fire, Marine, Miscellaneous) as per Form D of the First Schedule of the Insurance Act, 1938. It focuses on insurance operations and determines the Life Insurance Fund or General Insurance Fund balance.

Company Final Accounts As Per Schedule 3

Preparing a company’s final accounts as per Schedule III of the Companies Act, 2013 in India involves presenting financial statements in a standardized format to ensure transparency and compliance. Schedule III provides the format for the Balance Sheet, Statement of Profit and Loss, and related disclosures for companies (other than specific entities like insurance or banking companies).

Overview of Schedule III Companies Final Account

• Applicability: Applies to all companies registered under the Companies Act, 2013, except for specific industries (e.g., insurance, banking, or NBFCs, which follow other regulations).
• Structure:
  • Division I: For companies following Indian Accounting Standards (Ind AS).
  • D-II: This is for companies not required to follow Ind AS (e.g., smaller companies).
  • Division III: For Non-Banking Financial Companies (NBFCs).
• Components:
  • Balance Sheet
  • Statement of Profit and Loss
  • Notes to Accounts
  • Cash Flow Statement (if applicable, mandatory for certain companies).
• Format: Prescribes a vertical format with specific headings and classifications.

This guide assumes Division II (non-Ind AS companies) for simplicity, as it is more commonly applicable to smaller or medium-sized companies. If you need guidance for Division I or III, let me know.

Steps To Prepare Final Accounts As Per Schedule III

1. Understand the Components of Final Accounts

Final accounts typically include:

• Balance Sheet: Snapshot of assets, liabilities, and equity at the end of the financial year.
• Statement of Profit and Loss: Summarizes revenues, expenses, and profit/loss for the year.
• Notes to Accounts: Provide detailed disclosures for items in the financial statements.
• Cash Flow Statement: Required for companies meeting specific criteria (e.g., listed companies or those with a net worth above ₹500 crore or turnover above ₹1,000 crore).

2. Gather Financial Data

Collect all financial records for the year, including:

• Trial Balance: Summarizes all ledger balances (debit and credit).
• Ledgers: For assets, liabilities, income, and expenses.
• Supporting Documents: Invoices, bank statements, depreciation schedules, etc.
• Adjustments: Provisions, accruals, depreciation, bad debts, taxes, etc.

3. Prepare The Trial Balance

• Ensure the trial balance is balanced (total debits = total credits).
• Adjust for closing entries (e.g., outstanding expenses, prepaid expenses, provisions).
• Classify accounts as per Schedule III categories (e.g., current/non-current assets, equity, liabilities).

4. Prepare The Balance Sheet

The Balance Sheet must follow the format prescribed in Schedule III, with items classified as current or non-current.

Format Of Companies Final Account As Per Schedule III

Critical Adjustments Of Final Accounts

When preparing the final accounts of a Joint Stock Company in India as per Schedule III of the Companies Act, 2013, critical adjustments are necessary to ensure the financial statements reflect a true and fair view of the company’s financial position and performance. These adjustments are made to the trial balance before finalizing the Balance Sheet, Statement of Profit and Loss, and related disclosures.

1. Outstanding Expenses

• Purpose: Recognize expenses incurred but not yet paid by the financial year-end.
• Examples: Unpaid salaries, rent, interest, or utilities.
• Accounting Treatment:
  • Debit: Relevant expense account (e.g., Salaries Expense) – increases expenses in the Profit and Loss Statement.
  • Credit: Current liability account (e.g., Outstanding Salaries) – appears under “Other Current Liabilities” in the Balance Sheet.
• Impact:
  • Reduces profit in the Profit and Loss Statement.
  • Increases current liabilities in the Balance Sheet.
• Example: If unpaid salaries are ₹2,00,000

Journal Entry For This adjustment:- 

Salaries Expense A/c———————– Dr. ₹2,00,000

To Outstanding Salaries A/c———————————– ₹2,00,000

2. Prepaid Expenses

• Purpose: Recognize expenses paid in advance that relate to future periods.
• Examples: Prepaid insurance, rent, or subscriptions.
• Accounting Treatment:
  • Debit: Prepaid Expense account (e.g., Prepaid Insurance) – appears under “Other Current Assets” in the Balance Sheet.
  • Credit: Relevant expense account (e.g., Insurance Expense) – reduces expenses in the Profit and Loss Statement.
• Impact:
  • Increases profit by reducing current-year expenses.
  • Increases current assets in the Balance Sheet.
• Example: If insurance of ₹1,00,000 is paid for 12 months, with 4 months relating to the next year

Journal Entry For This Adjustment 

Prepaid Insurance A/c ————————————-Dr. ₹33,333

To Insurance Expense A/c—————————————————- ₹33,333

3. Accrued Income

• Purpose: Recognize income earned but not yet received by the year-end.
• Examples: Interest accrued on investments, rent receivable, or commission earned.
• Accounting Treatment:
  • Debit: Accrued Income account (e.g., Interest Receivable) – appears under “Other Current Assets” in the Balance Sheet.
  • Credit: Relevant income account (e.g., Interest Income) – increases revenue in the Profit and Loss Statement.
• Impact:
  • Increases profit in the Profit and Loss Statement.
  • Increases current assets in the Balance Sheet.
• Example: If interest of ₹50,000 is accrued but not received.

Journal Entry For This Adjustment 

Interest Receivable A/c ——————————Dr. ₹50,000

To Interest Income A/c ————————————————₹50,000

4. Income Received In Advance

• Purpose: Recognize income received but not yet earned, relating to future periods.
• Examples: Advance rent, subscription fees, or customer deposits.
• Accounting Treatment:
  • Debit: Relevant income account (e.g., Rent Income) – reduces revenue in the Profit and Loss Statement.
  • Credit: Unearned Income account (e.g., Advance Rent) – appears under “Other Current Liabilities” in the Balance Sheet.
• Impact:
  • Decreases profit by reducing current-year revenue.
  • Increases current liabilities in the Balance Sheet.
• Example: If rent of ₹60,000 is received for 12 months, with 6 months relating to the next year

Journal Entry For This Adjustment 

Rent Income A/c Dr.———————————- ₹30,000

To Unearned Rent A/c —————————————————-₹30,000

5. Depreciation

• Purpose: Allocate the cost of tangible fixed assets over their useful life as per Schedule II of the Companies Act, 2013.
• Examples: Depreciation of machinery, buildings, or vehicles.
• Accounting Treatment:
  • Debit: Depreciation Expense – appears under “Depreciation and Amortization” in the Profit and Loss Statement.
  • Credit: Accumulated Depreciation – reduces the carrying value of “Property, Plant and Equipment” in the Balance Sheet.
• Impact:
  • Reduces profit in the Profit and Loss Statement.
  • Reduces the net book value of fixed assets in the Balance Sheet.
• Example: If machinery worth ₹10,00,000 is depreciated at 10% per annum (Straight Line)

 Journal Entry For This Adjustment 

       Depreciation Expense A/c Dr. —————————————₹1,00,000

To Accumulated Depreciation A/c ———————————————-₹1,00,000

6. Provision For Bad And Doubtful Debts

• Purpose: Account for potential non-payment of trade receivables.
• Examples: Provision for doubtful trade receivables.
• Accounting Treatment:
  • Debit: Bad Debts Expense or Provision for Doubtful Debts Expense – appears under “Other Expenses” in the Profit and Loss Statement.
  • Credit: Provision for Doubtful Debts – appears as a deduction from “Trade Receivables” in the Balance Sheet.
• Impact:
  • Reduces profit in the Profit and Loss Statement.
  • Reduces net trade receivables in the Balance Sheet.
• Example: If receivables are ₹5,00,000 and a 5% provision is made:

Adjustment In Journal Entry 

     Provision for Doubtful Debts Expense A/c Dr.—————————– ₹25,000

To Provision for Doubtful Debts A/c————————————————- ₹25,000

7. Provision For Taxation

• Purpose: Account for income tax liability for the current year.
• Examples: Provision for corporate income tax.
• Accounting Treatment:
  • Debit: Tax Expense – appears under “Tax Expense (Current Tax)” in the Profit and Loss Statement.
  • Credit: Provision for Taxation – appears under “Short-term Provisions” in the Balance Sheet.
• Impact:
  • Reduces profit in the Profit and Loss Statement.
  • Increases current liabilities in the Balance Sheet.
• Example: If tax liability is ₹5,00,000

Adjustment In Journal Entry 

Tax Expense A/c Dr. —————————————-₹5,00,000

To Provision for Taxation A/c ————————————————₹5,00,000

Final Takeaway

Hence, these are some of the core concepts about companies’ final account that you must be well aware of. These are some of the crucial factors that you must be well aware of while meeting your requirements with ease.

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ICA Edu Skills Team

Working with businesses in diverse industries. I'm passionate about helping others understand and manage their finances effectively. This blog is where I share practical tips, insightful guides, and the latest updates on accounting, taxation, GST, TallyPrime, and advanced Excel. Feel free to ask questions, leave comments.

Latest posts by ICA Edu Skills Team (see all)

• Beginners Guide To Advanced Journal Entries - October 10, 2025
• Master The Visual Basic Editor In Excel - September 26, 2025
• Annada College- ICA Edu Skills Hazaribagh Job Fair 2025 - September 22, 2025